WHY TO INVEST IN EQUITY?

"If you don't find a way to make money, while you sleep, you will work until you die"
                                                                                                                       Warren Buffet

Not investing in Equities is subject to career risks!!!

Why does one enter stock market, Is it a gambling?

Most individuals and families refrain from stock market investment. When they hear about market they think it is a gamble to invest in stocks, it is not worth getting into equities as they are risky bets. As a result most of the savings of Indian families goes into gold, fixed deposit and real estate, there by missing the opportunity to compound their wealth in the long run. Many say stock market is like gambling, they are the ones who first go for a chit fund to double their money, or their ignorance helps them in keeping huge sums of money in bank a/c as fixed deposits.

"If you know what you are doing then stock market is a bloody exciting journey that keeps your blood and veins pumped up, it is only for those who want to gain knowledge along with wealth"

Current Status
Real estate & Land- At current prices, those who can afford it have more than they need, those who need it can't afford it, so 20-30% decline by year 2020. Land prices in India will decline for next 10 years in Rupe terms, inflation adjusted

Gold- Invest Rs 10 lakhs in Gold ornaments,you will get 8 lakhs worth metal, which will be priced at 6 lakhs in year 2027

Fixed Deposit, Insurance, P.F - These are no more considered an investment as they provide just marginal returns which is insufficient to beat the inflation.

Equity
Only 4 % of domestic indian savings is into equities. This figure is expected to double in 3 years as people are slowly beginning to learn the importance of investing in equity. When one invests in a company he becomes a share holder of that company. His liability is limited upto the amount of shares he has purchased. By doing so, an individual becomes a shareholder/owner of the company. He is eligible to receive tax free dividend, bonus and rights shares as and when issued by the company.

The Round Circle Theory
How does company make money? Ans- When consumer buy their products, right!
Lets take an example of ITC. When we are purchasing products of ITC (e.g - Ashirvad Atta) we are generating an income for the company. We have to purchase it because it is our necessity , it is also our expenses. So how do we counter that expense or offset it in the long run, the answer is very interesting by purchasing the shares of ITC company. So, what happens when we purchase their shares, we are eligible for healthy dividends, and also our capital appreciates over a longer term, as the company keeps on generating revenues year by year. By doing so, one can earn a substantial amount which will not only exceed the amount that he spent on the company by purchasing its products, but also creating huge wealth in long run. The following chart will help you understand better how the circle works in creating wealth over long run. Now one can argue there are risks. Yes indeed there is risk in equity investing, but that risk factor is taken out by maximising the time factor (duration). As there is more risk so is the return, as long as one keeps himself updated through learning, the risk factor gets more and more lesser and the returns much brighter and bigger.
Take a look at the daily consumption chart one goaes through within the day, and how one can generate return by investing in the companies, whose product he uses day in and day out.

Now i don't care if my friends ride a Royal Enfield,  i will be proud enough to own even one share of the company EICHER MOTORS (the company that makes Royal Enfield), that will generate huge wealth for me in long run.

Again the same principle applies, not only buy the product, but also buy shares of the company that makes it.

If i was with this kind of amount, i would never buy a Rolls Royce, I would have reinvested them again in Equities, barring some gains. That's how you compound wealth in long run.

                    Another example how Infosys created wealth in long run for shareholders

Look into Equity as your 3rd child

Most Indian families have two children. They spend a lot of money over a 25 year period in educating their children's, fulfilling all their needs and marrying them off. I would advice my friends to think off equity as their third child, by putting in almost same amount of investment that you keep incurring on your both children. After doing this act for 25 years, whether your real children's look after you or not, the third child "EQUITY" will definitely look after you.

How To Invest?
After reading the above facts if one gets motivated and decides to make himself a favour by investing in equities, then he has two choices

1. Mutual Fund
2. Direct Investment in Equity

I would not recommend investment through mutual fund. Direct investment is the one that i followed, through learning. When one opens a business or a shop, does he lends his money to the neighbour and ask him to manage his business. No rather he himself analyses the risk and reward factors and then decides, to open his business. Similarly share market requires your involvement. Learn and then invest, if investment is made on fundamental learning then the returns can easily beat any mutual fund in India.

"Don't expect a mutual fund to always make you a millionaire, there may be exceptions but if it was possible then everyone would have been one. Investing requires knowledge, discipline and most important patience"

What will happen if Market Crash?
Don't worry market is always volatile. In short term market is perfectly irrational, in long term it is Maths. Market Graph is always like lifeline, up and down, if it remains straight then it means death. So, Volatility is the nature of market.

Suppose, lets say you purchase a top quality shirt, from Pantaloons, you are very happy by thinking  how you are going to look wearing the same shirt. The next day you find your friend getting for 50% less as there is sale on all products. So what do you do? Do you go to Pantaloons and ask them to return the same?? Not possible right!!You must rejoice this opportunity and buy more as you are getting sale on top quality shirts (almost 30% off), What normal people do when there is sale going on, they buy more, hence you can average and stock up for future use. Similarly in stock market if you buy quality stocks, and if it crashes for some reason, then you must buy and again average, one day it will definitely surpass your buying price and provide fruitful results.

                           "A crash is always an oppurtunity to cash in to quality stocks"

What you buy is more important than when you buy. How much you buy is more important and till when you keep is the most important.  Throughout all my years of investing I've found that the big money was never made in the buying or the selling. The big money was made in the waiting.

When To Invest?

The best answer to this question is when you have money with you. When you realise that savings are an integral part of your life. Many wait for markets to crash for investment and others generally neglect it saying they will invest after a particular age. This is the biggest mistake one can make. The sooner you start the better it is.

When Warren Buffet was asked "What is the biggest regret in your life?

He mentioned - I started investing at the age of 11, i wished i could have started 11 years earlier"

"Investing should be more like watching paint dry or watching grass grow, if you want    
  excitement then take 800$ and go to Las Vegas"
                                                      Paul Samuelson